The corporate income tax and who pays it
The show’s most sustained treatment of the income tax concerns the corporate income tax, which Bob Zadek characterizes as a job-killing statute whose repeal economist Laurence Kotlikoff advocated in a New York Times op-ed responding to weak employment numbers in the United States. Zadek describes the tax as an income tax whose taxpayers are American corporations or corporations earning income in the US, supported by political figures who regard corporations as a home for the rich and as a surrogate for the wealthy, and therefore treat taxing corporations as taxing the rich. How the Free Market Will Save the Planet (2014)
Zadek’s central claim is that corporations cannot pay taxes: they write checks, but the expense is built into the sales price of the product, into how much wages the corporation can afford to pay, and into dividends paid to owners — owners who are, for the most part, 401(k)s and pension plans funding individuals. On this account a decision to tax a corporation is a decision to tax owners, workers, suppliers and creditors, all of whom are humans. He also argues the tax is inefficient because it invites corporations to seek special tax bills in Congress, a hidden benefit voters rarely learn about, and he invokes the principle of concentrated benefits and dispersed costs: a ten-million-dollar benefit to a corporation may cost each voter four cents, so no one storms the Bastille over it. He adds the maxim that an old tax is a good tax, because people have adjusted and inertia discourages change. How the Free Market Will Save the Planet (2014)
In a later episode Zadek puts the same premise directly to Richard Rubin: that there is no such thing as taxing a corporation, and that corporations are merely tax-collecting intermediaries. Rubin generally agrees, describing corporations as collections of shareholders, bondholders, employees, executives and, to some extent, customers, and the corporate income tax as a tax on a business’s profits. He frames the incidence question as a dispute economists argue about, divided between capital and labor. Auditing the Corporate Income Tax (2021)
Rubin supplies the numbers: government estimates put roughly three-quarters of the burden on capital and one-quarter on labor; more conservative economists say it is closer to even; some hold that the short run leans toward capital and the long run toward labor. Capital means shareholders, who receive less in dividends and hold shares worth less. Labor means workers paid less, because a lower after-tax rate of return reduces productivity-enhancing investment, so machines do not make workers more productive and wages cannot rise as much. Auditing the Corporate Income Tax (2021)
Rubin also notes that shareholders tend to be wealthier and higher income than the population as a whole, while stock ownership is concentrated yet widely distributed through 401(k)s, and that a big portion of corporate shareholders are foreigners — he puts it at roughly 40% of US equities. He compares the corporate income tax to the car rental tax in Orlando, a way of capturing demand from outsiders, and observes that if foreign investors shift to Siemens or Mitsubishi instead, investment falls. Zadek adds that union pension funds and life insurance companies own equities, and that because insurers sell policies across the economic strata, lower taxes on their investment income would be reflected in lower premiums. Auditing the Corporate Income Tax (2021)
The case for and against abolition
Asked whether the world would be better without a business income tax, Zadek states his own position: if the goal of taxation is to raise money, and if taxing corporations is really taxing individuals selectively — shareholders, workers, and consumers to some small degree — then the honest course is to raise the individual income tax to make up the lost revenue and not tax entities at all, because entity taxation leads firms such as Amazon to make business decisions for tax reasons rather than economic ones, distorting the use of capital. Auditing the Corporate Income Tax (2021)
Rubin declines to offer an opinion but lists considerations cutting the other way: the foreigner argument, since the US cannot tell a random investor in Tokyo that he owes money; the risk that untaxed money stays inside the corporation rather than reaching shareholders; the administrative efficiency of using corporations, which have compliance infrastructures, as tax collectors rather than pursuing millions of individuals through the IRS; and the progressivity of the corporate tax relative to raising the payroll tax or lifting the 10% bracket, given how concentrated stock ownership is. He adds that compared with raising the top individual rate, the capital gains rate or the estate tax, the corporate income tax may be a less useful tool for progressivity, and that the answer depends on one’s political aims. Auditing the Corporate Income Tax (2021)
Zadek responds that retained wealth not used to produce more wealth is punished in American equity markets through raids on management, hostile takeovers and shareholder rebellion, and that corporations buy back shares precisely because they judge the wealth better placed with owners. Auditing the Corporate Income Tax (2021)
Across episodes
The corporate income tax is argued in two episodes seven years apart, and the treatment does not develop so much as narrow. In 2014 Zadek carries the argument himself, asserting that corporations do not pay income taxes and that the tax is a home for cronyism, while the excerpt’s guest material concerns light bulb manufacturing. In 2021 he puts the same premise to Richard Rubin, who agrees in substance but supplies estimates of incidence, the foreign-ownership figure of roughly 40% of US equities, and administrative and progressivity arguments for retaining the tax; he also declines, where Zadek had urged abolition, to endorse it. Between the two, the claim is constant and the evidence becomes quantitative.
The income tax as a penalty on earning
In a later episode Zadek describes the income tax as the tool by which successful people are punished, attributing to Elizabeth Warren, AOC and Bernie Sanders the position that the existence of rich people is itself improper. He invites listeners to imagine the country without an income tax, notes that the country enjoyed sustained economic growth after the Civil War and until the income tax, and states as a core principle that the more you tax something the less you have of it — so taxing income produces less income, and it is earnings that supply the money to hire people. He compares income taxation to taxing breathing and asking people to halve it. What the IRS’s Hiring Spree Means for You (2023)
The same episode turns on the Internal Revenue Service, which Zadek calls the only federal agency whose goal is taking property from people who did nothing wrong, and notes the Biden administration’s allocation of more than eighty billion dollars to it. He contrasts the income tax with sales tax, which is paid voluntarily at the moment of deciding to buy a meal or a car — an excise tax on activity, where not doing the activity avoids the tax — and says evil is not too strong a word for an income tax. What the IRS’s Hiring Spree Means for You (2023)
The price of work across states
An earlier episode frames the personal income tax through migration between California and Texas. The excerpt cites a 10.3% California personal income tax rate, recently raised to 13.3%, described as the highest in the country, against zero income tax in Texas, and argues the difference can shape lifetime earning potential for two graduates: whether they lower student debt sooner, and when they can afford a down payment on a first home. The guest reports meeting people on a national book tour who say that going to or staying in a zero income tax state changed their family’s life by letting them pay college tuition with the money saved. Where is Everyone Going? (2013)
The same excerpt states that the nine states with zero income tax have collectively gained over $146 billion over a fifteen-year period, while the nine states with the highest personal income tax rate have collectively lost over $100 billion. It cites Texas as a state where labor participation keeps increasing and where jobs over the past three to five years have been better than almost anywhere else in the country, concluding that when government gets out of the way of work, Americans will work more. Where is Everyone Going? (2013)
What the sources do not cover
The excerpts do not identify the constitutional amendment or Supreme Court case on which the income tax’s legality turned, nor the statute that created it, and no speaker in these excerpts gives its enactment date. The mechanics of withholding, brackets, filing status and the individual rate schedule are absent, as is any treatment of state corporate taxation or of payroll taxes beyond a passing reference in Rubin’s comparison. The excerpts contain a section break and a dropped guest label at the end of the California–Texas segment, and no speaker’s full response there is available.